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Getting on the ladder: First time buyers' guide

Category: Mortgages
Author: Leanne Macardle
Updated: 07/03/2018

The current market is great for first-time buyers. Over the last few years there's been a definite increase in the number of people getting on that first rung of the housing ladder, helped in no small part by Government incentives (such as Help to Buy), meaning home ownership is now a much more viable possibility.

It's now perfectly possible to buy a house with a 5% deposit – go back a few years and mortgage lenders would have barely considered it – but of course, there are still challenges involved. Here at Moneyfacts we want to help make that dream of owning a home become a reality, so we've put together a short guide that could help the process along.

Start saving for a deposit

Saving for a deposit can often be the most difficult part of the entire process. If you're already renting, it can be difficult to put aside enough money to make a meaningful difference to your savings pot, but remember that even saving small amounts can still add up – 'little and often' should be your mantra.

Of course, you'll want to look for savings accounts that offer the best rates. You might find you'll need to lock your money away for a set amount of time to secure the best deals, but make sure further additions will be allowed after your initial deposit, otherwise you won't be able to add to your pot.

You may also want to consider a Help to Buy ISA, a Government initiative that allows you to save regular amounts and receive the interest tax-free. If you use the proceeds of the account to buy a house, the Government will add another 25% of the value of the account (up to £3,000) to your savings pot, making this a great type of account for a house deposit. Better yet, if there are two of you saving for your deposit, you can each have a Help to Buy ISA, so your pot could quickly add up - particularly with the Government boost. The new Lifetime ISA, launched in April 2017, can also be used to save for a first home, and benefits from a generous Government top-up.

Alternatively, setting up a regular savings account could be an ideal option as it'll help you get into the habit of saving, and if you accompany it with a cash ISA to make the most of your tax-free allowance, you could soon see your savings begin to grow.

A final point – remember that the increased availability of higher loan-to-value (LTV) mortgages means that your deposit requirement could be smaller as a result, so saving for that dream home may not seem so out of reach after all.

Budget effectively

It's worth bearing in mind that it isn't just the deposit you'll need to be saving for. Buying a home can be an expensive business, particularly when you factor in the likes of legal fees, valuations and moving costs, so make sure to budget for these additional expenses too so you don't get a shock later down the line.

Getting your finances in order is therefore vital. You'll need to think not only about saving but about sorting out any existing debt, and make sure you consider any future repayments and their affordability – something that's an increasingly strict requirement thanks to the mortgage regulations that lenders have to adhere to. So, set a budget and stick to it – it'll be worth it in the long run!

Learn more about the mortgage market

It's said that knowledge is power, and you can definitely use it to your advantage when searching for your new home. There's nothing worse than feeling bamboozled by jargon and wondering what on earth to do next, but it could prove financially costly, too – if you don't know how the mortgage market works, what different terminology means or what interest rates, fees and charges you could face, you could end up paying far more than you need to, both in upfront costs and longer-term repayments.

That's why it's so important to do your research before you begin. Ideally you'll want additional financial advice so you're confident going forward – speaking to a mortgage broker or financial adviser could be a great option, but even researching the area yourself could be a great start.

Consider the Help to Buy scheme…

The Help to Buy scheme has made it easier for a lot of first-time buyers (FTBs) to get on the housing ladder, with many lenders able to offer mortgages at much higher LTVs than they were willing to do previously. The help of a Government equity loan or guarantee no doubt added to the willingness to lend. Following the end of the guarantee scheme, the Help to Buy scheme now only applies to obtaining an equity loan for new build properties.

You'll be able to find great deals, too, with many offering 95% LTV mortgages at less than 5% APRC, and in some cases these are accompanied by low (or even no) fees, so it's definitely worth taking a look around. Don't forget about the Help to Buy equity loan option either – this part of the scheme means the Government would provide an equity loan of up to 20%, provided you're buying a new build, which, along with your 5% deposit, means you'd only have to search for a 75% LTV mortgage. It could be a great option for those who are looking for a new build home, so speak to your lender or house builder to see what your options are.

… but don't overlook other possibilities

However, it isn't just lenders who participated in the schemes that offer 95% mortgages. A lot of other lenders offer these products, too, and in some cases they can even offer better rates. It's also worth speaking to smaller lenders as well as the big names to see what you can find.

Increase your chances of acceptance

For many FTBs, one of the most nerve-wracking times will be making that mortgage application. What if you don't get accepted? What if you don't get the amount you wanted? What if you'll be stung with a high interest rate? Worrying about your application can make the whole process even more stressful, but if you're concerned, there are a few things you can do to increase your chances of mortgage acceptance:

  • Save as much as possible for your deposit.
  • Make sure you're on the electoral roll.
  • Check your credit report (there are plenty of services that offer credit checks).
  • If necessary, look for ways to build up your credit score.
  • Make sure to repay any existing debt (or have a plan in place to do so).
  • Have realistic expectations about how much you could repay on your mortgage each month.
  • Speak to your lender about how much you could borrow before searching for properties.
  • Get advice.

If you're really worried, we've put together a more comprehensive guide on increasing your chances of acceptance, which covers the above points in more detail. Check it out here.

Find the best rates

One of the most important parts of the process will be finding the right mortgage for your needs, so take a look at our handy comparison tool to see if you can uncover the best deal for you. Then all you've got to do is find that dream home!

What next?

Check out our guide to the Government's Help to Buy scheme: Equity Loan

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.